The economy is in a coma. Tax cuts won’t help.

We’re roughly a year away from the next federal election, and the recession recovery that forms the bedrock of the Harper government’s political narrative is looking more and more like smoke. Last Friday, Statistics Canada released its Labour Force Survey for the month of August. It showed the economy lost 11,000 jobs in August, following an unprecedented decline of 112,000 private sector jobs only partly offset by an equally unprecedented increase in self-employment.

The numbers are being greeted with some skepticism in certain quarters, given what happened to the last batch. In July, StatsCan released a survey showing that the economy had created only 200 jobs. The agency had to retract that report, blaming “human error” for the lowball number; the subsequent estimate found 42,000 jobs created, all part-time — a decline in full-time jobs, but a smaller decline than originally reported.

StatsCan has never before acknowledged such an error — but everyone really should have seen it coming. The agency’s budget has been cut by $23.9 million. About 800 staffers have been laid off. The long-form census has been eliminated, depriving provinces, municipalities and researchers of critical data. Statistics Canada’s reach and credibility have been deeply eroded by the current government.

But Mr. Harper has a far, far more pressing problem: The dismal job creation numbers over the past 12 months merely show a long-term trend becoming entrenched. The economy has been in a growth and employment slump since 2010, with economic growth and employment growth falling year after year. The government’s response to this stagnation has been to repeat the same, threadbare talking point: that a million jobs have been created since 2008.

The Harper government has been in denial about Canada’s poor economic and job performance for some time. The overall unemployment rate remains mired at seven per cent and the unemployment rate for young Canadians has been stuck between 13 and 14 per cent. Two key numbers — the labour force participation rate (the number of people employed as a percentage of the population) and the employment rate (the ratio of working people age 15 and older to the population) — are both below their 2001 and 2008 levels.

Too many Canadians have stopped looking for work altogether. Most of the jobs created over the past year have been part-time; in fact, Canada seems to be degenerating into a part-time employment economy with stagnant labour income. The government seems oblivious. Finance Minister Joe Oliver’s only jobs strategy is to hope for a recovery in the United States. He believes, apparently, that there’s nothing the federal government can do to strengthen domestic demand and job creation except stick to the plan to eliminate the deficit by 2015-16.

Oliver’s predecessor, the late Jim Flaherty, spent years sniping at the U.S. and other G7 countries for failing to take action to eliminate their deficits quickly. Washington ignored him, taking the view that a rapid reduction of the temporary stimulus from the 2008 recession would undermine the recovery.

Who won that argument? The answer is in those job numbers: The U.S. economy is growing while Canada spins its wheels.

Last month, Oliver held a meeting with private sector experts to discuss ways to strengthen economic growth and job creation. We don’t know what advice they gave him, but we can conclude from the names he invited that he wasn’t hearing anything new: Eliminate the deficit, shrink the size of government and patiently wait for the private sector to wake up and start hiring again.

Several private sector economists recently have offered the same advice to the government. In their view, the current fiscal climate is simply too risky for increased government spending (it isn’t) and directing stimulus funding to, say, infrastructure would be a disaster (it wouldn’t). In other words, the stoics in the private sector advise us to simply accept slower economic and employment growth as the new normal for the next several years.

The passive approach isn’t working. Of course we have options — they just happen to be ones that clash with the Conservatives’ hands-off economic orthodoxy.

“Given the continued slow pace of the global economic recovery, a significant rebound in Canadian private demand is unlikely in the near future. High household debt suggests that consumption is an unlikely source of near-term growth. An investment revival will require a return of corporate confidence, while an export rally will depend on a strong and sustained foreign recovery. Canadian policymakers should therefore accept the likely continuation of Canada’s slow-growth recovery for the next few years.”

We agree with Mr. Ragan on one point: The medium-term economic prospects for the global economy are not good. The eurozone remains in recession because France, Germany and Italy are in recessions. It will be many years before the eurozone solves its structural and policy issues — if they can be solved. Many experts predict a long period of economic stagnation in Europe.

The Chinese economy is slowing also, as are the economies of the other BRIC countries. More importantly, the outlook for the U.S. economy is extremely fragile. And to say there’s a lot of geopolitical uncertainty out there is to put it mildly.

Federal Reserve Board Chair Janet Yellen remains very cautious about the prospects for the U.S. economy. She has stated over and over that, despite some good monthly job numbers, the recovery remains in jeopardy unless we see a fundamental strengthening in household income and the housing market. In fact, U.S. job numbers for August were not that good. Many respected economists believe the U.S. economy has entered a long-run period of diminished growth.

What should Canada do? For starters, the passive approach isn’t working. In the face of global economic uncertainty and a secular decline in growth, Canadian policy makers need to get at the levers that can strengthen growth at home.

There is absolutely no reason why our government should accept Professor’ Ragan’s conclusion. Of course we have options — they just happen to be ones that clash with the Conservatives’ hands-off economic orthodoxy. The Harper government is committed to lower taxes, lower spending, balanced budgets and smaller government. But why should Canadians accept these as the only options? There’s nothing inevitable in this climate about years of sluggish growth. It’s a choice — a political choice.

So with its energies directed at the coming election, the Harper government finds itself stuck in a dilemma of its own making. It wants to run on a record of good economic management but it wants to define that record as narrowly as possible — as simply eliminating the deficit. In fact, as we argued last week, the government could kill the deficit this year, one year ahead of their political schedule. But getting rid of a deficit you created doesn’t make you a good economic manager. Healthy economies grow at a healthy rate. Ours isn’t.

Overall growth strengthened in the second quarter, after a dismal first quarter, but private sector investment remained stagnant. Income growth and employment growth are flatline and the government has clearly failed to manage the domestic economy. Canadians today are not better off than they were in 2011, 2008 or 2001. Nor do they expect their employment and income situations to improve in the coming years.

The government is forecasting a surplus of around $6 billion a year beginning in 2015-16. Subsequent surpluses will be restrained because global economic growth is unlikely to strengthen as it did in the 1990s and the early years of this century.

Mr. Oliver has stated that, once the deficit is eliminated, he’ll cut taxes. But there are good ways and bad ways of doing that. The Harper government remains politically committed to introducing income splitting for families with children under the age of eighteen. Such a tax cut would be a gift to a very small number of high-income Canadians, while contributing nothing at all to economic growth and job creation. The same goes for extending the fitness tax credit to adults, another commitment made in the 2011 election.

In the past, the government vowed to reducing the absolute level of government debt by $3 billion a year once the deficit is eliminated. Under this government, the federal debt has increased by $150 billion — so it’s easy to see how debt reduction plays to the base. But how would this contribute to economic growth? The ratio of debt-to-GDP is at already at 30 per cent and, without any reduction in debt, is forecast to decline to levels that haven’t been seen in half a century.

Why not stabilize the debt ratio at 30 per cent of GDP? Why shouldn’t a government borrow to make new investments when ten-year, thirty-year, and fifty-year interest rates are at historically low levels? Surely that’s what future generations would want us to do.

As the election debate unfolds in the coming months, and as the party leaders roll out their economic policies, Canadian should ask themselves just one question: Does anyone have a plan to get us out of the hole we’ve been in for four long years?

Scott Clark is president of C.S. Clark Consulting. Together with Peter DeVries he writes the public policy blog 3DPolicy. Prior to that he held a number of senior positions in the Canadian government dealing with both domestic and international policy issues, including deputy minister of finance and senior adviser to the prime minister. He has an honours BA in economics and mathematics from Queen’s University and a PhD in economics from the University of California at Berkeley.

Peter DeVries is a consultant in fiscal policy and public management issues, primarily on an international basis. From 1984 to 2005, he held a number of senior positions in the Department of Finance, including director of the Fiscal Policy Division, responsible for overall preparation of the federal budget. Mr. DeVries holds an MA in economics from McMaster University.

The views, opinions and positions expressed by all iPolitics columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of iPolitics.

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Scott Clark is currently President of C. S. Clark Consulting. Prior to that Mr. Clark held a number of senior positions in the Canadian Government dealing with both domestic and international policy issues, including deputy minister of finance and senior adviser to the prime minister. He has an honours BA in Economics and mathematics from Queen’s University and a PhD in Economics from the University of California at Berkeley.
Peter DeVries is currently a consultant in fiscal policy and public management issues, primarily on an international basis. From 1984 to 2005, he held a number of senior positions in the Department of Finance, including Director of the Fiscal Policy Division, responsible for overall preparation of the federal budget. Mr. DeVries holds an MA in economics from McMaster University.